Timing matters in the Cursor acquisition
The announcement of Cursor's $60B acquisition by SpaceX is timely, for two reasons: 1️⃣ It is bolstering the share price right now, as confirmed by the 10% bump today. As my colleague Raphaelle d'Ornano wrote, it adds tremendous credibility and potential to xAI, the weak link in the SpaceX assemblage. What she calls the "coding wedge" is a formidable competitive weapon and SpaceX gets it instantly... 2️⃣ ... as soon as the deal closes. The all-stock deal is expected to close in the 3rd quarter of 2026. The exact conversion ratio will be determined by the volume-weighted average closing price of SpaceX stock over the seven trading days leading up to the transaction's close. That could make a huge difference to how much of SpaceX Cursor shareholders end up with: at todays share price, it's about 2%. My forecast for Q3 share price is $60-$80, which would amount to 6%-7% of SpaceX.
SpaceX may be a $1.7 trillion (or even $10 trillion) company. Why does it have to be now? Fully agree with my colleague here (not surprising 🚀 ). I thought about the Elon factor and came to this conclusion: SpaceX is an amazing company, a feat of human engineering and ingenuity, a testament to grit, hard work and resilience (and Gwynne) and it would be foolish to "bet" against Elon and his vision. I actually believe that it will be the first $10 trillion company. But it is not there yet. It will earn its valuation, heck, maybe it will reach $100B in revenue by 2027 and then it will be worth $2 trillion. But not today. Even with the Elon premium, the risk is enormous. So why does it have to claim this value today? They have been working on this for 24 years, what's another 2 years? If I were not such an idealist, I would suspect that a lot of rich people who invested in various Elon ventures (X, xAI) need their money back. For sure, Larry Ellison needs his money back.
I made a $900B mistake ... in a previous version of this preprint. LinkedIn is the new ArXiv. And the SpaceX IPO is coming in 2 days. So here is the updated version, taking into account the much needed decision by S&P Global to maintain its inclusion criteria: the first version assumed the upcoming mega-IPOs (SpaceX, OpenAI, Anthropic) would be included early with no profitability constraints. In this version, I am treating it as the counterfactual: what would have happened if S&P had changed their inclusion conditions and allowed SpaceX to join after a reduced seasoning period? It turns out that the difference is big. $900B big, in forced buying, and that's not accounting for hedge funds that are benchmarked-constrained and need to buy index stocks. The consequences of the thin float combined with enormous market caps and forced demand could have been catastrophic. Now it is just concerning: a mere $100B of forced buying will not force a crisis. Have fun if you are into this kind of model. Just a warning, I am assuming, as reasonable seem to be doing, that the "fair value" of the stock is 50% of its IPO entry price. Since this may not be palatable to everyone, I am appending a link to the simulation model, change the parameters to your heart's content!
Spacexipo.bonabeauapps.com